$3 Billion in Seven Months: Should eBay Stop Spending?

by Anthony John Agnello | July 10, 2011 5:31 am

$3 Billion in Seven Months: Should eBay Stop Spending?

eBay (NASDAQ: EBAY[1]) is not known for resting on its laurels. The business has built its reputation on a keen understanding of the latest trends in online commerce trends. It’s been a long time since eBay was seen as an innovator, but it’s always ready to open its checkbook to buy into whatever is hot. The $1.5 billion eBay spent on online payment company PayPal in 2002 seems like a bargain almost a decade later. Where basic online payment options were the future of commerce at the beginning of the ’00s, the future now is in mobile payments.

The latest addition to eBay’s arsenal bulks up its mobile payments business[2]. The company announced on Thursday that it had acquired mobile payments provider Zong for a cool $240 million. The company’s services are predominantly used for processing small transactions in smartphone apps such as games. Zong has a base of 3.2 billion users across 250 mobile carriers around the world, 750 million of which are Facebook users that use Zong to buy that social network’s currency, Facebook credits. Zong eventually will be woven into the broader PayPal business.

Zong is just the latest in a string of high-profile mobile payments acquisitions for eBay. In December, the company spent $75 million on Milo, a service that tracks what products local businesses have in stock. In April, the company spent an undisclosed amount acquiring two separate mobile payment companies, Fig Card and Where Inc. Fig Card was a small company of just three people that had made a quality mobile payment system for smartphones. Where Inc., the developer behind a location-based advertising network as well as apps pointing users to local business based on interests, was thought to be a larger purchase than Fig Card. Techcrunch[3]‘s Leena Rao speculated in May that eBay spent at least $200 million on the two. Those were small beans compared to eBay’s $2.4 billion spend on developer GSI Commerce[4], however.

eBay’s plans are clear. It wants to own the best mobile payments technology out there, it wants to tie that technology to the PayPal brand, and it wants a network of local business-friendly resources like Milo and Where alongside massive resources like GSI to help proliferate that technology. The plan is sound. Still, this rapid expansion into mobile payments means that eBay has spent more than $3 billion in less than a year. Should shareholders be concerned?

In 2010, eBay’s revenue totaled $9.2 billion. Non-GAAP net income in 2010 totaled $2.3 billion. The company expects decent growth across 2011, with revenue around $10.5 billion. Growth or no, eBay still is spending a lot. But while businesses are hot for mobile payments, it’s not abundantly clear that consumers are.

Investors might feel uncomfortable with the amounts eBay is dropping, the company’s track record should bolster confidence. Investing this heavily for such a strong position in the mobile payments business before consumers fully latch on is that same kind of strategic thinking that was at work in the aforementioned PayPal acquisition way back when. Come 2015, spending $3 billion on Zong, Milo, GSI, Where and whatever else eBay purchases this year will seem like a bargain.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[5] and become a fan of InvestorPlace on Facebook.[6]